Top health industry issues of 2020: A looming tsunami of high prices

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Facing a tsunami of high-priced gene and cell therapies and ever-rising provider prices in 2020, employers, public and commercial payers, and American consumers will seek—and sometimes find—creative ways to finance care, spread risk and ensure that their money is paying for value.

Top of mind for payers and employers is the ballooning pipeline of emerging treatments, such as gene therapy, with million-dollar price tags and the potential to save or vastly improve lives. The impact of these therapies is not being felt acutely yet. As of September 2019, the FDA had approved just four gene therapies, with a total potential patient population of about 50,000 Americans per year, according to an analysis by HRI.[i] As of July 2019, providers in just five ZIP codes were offering all four FDA-approved gene therapy products.[ii] Some states had no providers offering any of the therapies. And other snags involving clinical trials have slowed development, too.[iii]

But by 2030, some experts estimate that 500,000 Americans will have been treated with gene and cell therapies.[iv] And the pipeline is robust: The FDA expects to receive 200 investigational new drug applications for gene and cell therapies in 2020, with 10 and 20 approvals per year by 2025.[v] It’s no wonder that when the National Business Group on Health polled its members about their concerns, 60 percent cited the pipeline of million-dollar treatments.[vi]

Consumers are growing louder in their demands for value, for transparency in pricing and for affordability. “Working Americans will do anything possible to avoid interactions with the healthcare system, because it’s a sinkhole of personal time and money,” Niall Brennan, president and executive director of the nonprofit Health Care Cost Institute, told HRI.[vii]

The 181 million Americans covered by employer-sponsored insurance continue to grapple with rising healthcare spending. In 2019, the average employer-sponsored family insurance plan hit $20,576, an increase of 5 percent over the previous year, according to the Kaiser Family Foundation.[viii] HRI is projecting a 6 percent medical cost trend for 2020, an uptick over the previous three years.[ix]

True or false? Medical cost trend is expected to decrease in 2020.

That’s false. HRI is projecting a 6% medical cost trend for 2020, an uptick over the previous three years (but still lower than it was in 2007, when medical cost trend nearly hit 12%).

Wildly diverging provider rates make it hard for employers — and their employees — to know whether they are getting a good deal. Provider prices negotiated by commercial payers can be significantly higher than Medicare rates, according to a study of charges paid by employer-sponsored plans conducted by Rand Corp.[x] The study examined $13 billion in inpatient and outpatient charges by 1,598 hospitals in 25 states between 2015 and 2017 and found that, on average, relative prices for hospital outpatient services were 293 percent of Medicare rates in 2017 and 204 percent of Medicare rates for hospital inpatient services.[xi]

And in a survey of provider executives in 2019, HRI found that many systems are failing to use many strategies to help consumers pay for their care (see Figure 2).

Figure 2: Providers and plans have many financial options for consumers, yet Americans are still frustrated

The cost pressure has been building for years, of course. But in recent months, a sense of crisis has set in. Democratic presidential candidates are talking about reshaping wide swaths of the $3.6 trillion US healthcare system.[xii] Lawmakers from both parties have introduced bold legislation tying prices paid by Medicare for some drugs to those paid by nations overseas.[xiii] Outraged consumers are sending journalists medical bills, hoping to be featured in “bill of the week” stories.[xiv]

States and drug companies are striking subscription deals: a flat fee for a year’s worth of unlimited treatment for the state’s Medicaid beneficiaries and public charges.[xv] Commercial payers are developing coverage strategies for employers and their employees to mitigate unexpected spikes in costs due to high-priced treatments.[xvi] They also are beginning to balk at paying for some services in outpatient hospital departments, encouraging members to have planned surgeries, MRIs and other services performed at lower-cost sites of care.

In the fall of 2019, Minnetonka, Minnesota- based UnitedHealthcare announced that it would start requiring site-of-service medical necessity reviews for some surgeries scheduled for outpatient hospital settings, with the aim of encouraging members to choose lower-cost sites of care, such as ambulatory surgery centers.[xvii]

“We see opportunity to shift well more than 20 percent of our medical spend to these more effective sites,” Dirk McMahon, CEO of UnitedHealthcare, told analysts in a 2019 earnings call. “For example, there is a significant opportunity for more

hip and knee replacement procedures to be performed in ambulatory centers — with those settings often having a 50 percent cost advantage over traditional settings and with fully comparable, if not better, safety and quality.”[xviii]

Employers are setting up sophisticated worksite clinics and, in some cases, directly contracting with providers as they hunt for new ways to control spending without shifting additional costs to their employees.[xix]

Merger and acquisition activity in the payer sector, especially vertical integration deals, is producing novel solutions for expensive treatments. In September 2019, Bloomfield, Connecticut-based Cigna Corp., which bought the pharmacy benefits manager Express Scripts in late 2018, announced Embarc Benefit Protection, a product to help plans and self-insured employers pay for two of the four FDA-approved gene therapies.[xx] Those therapies are Luxturna, which treats a rare, inherited retinal disease and has a list price of $425,000 per eye, and Zolgensma, which treats a specific form of spinal muscular atrophy in children younger than 2 and which is priced at $2.1 million.[xxi]

The program allows participants to pay $1 per member per month for coverage of the two treatments. Patients or, in the case of Zolgensma, their families would incur no out-of-pocket costs, and self-insured employers and plans would gain predictability. The company told Modern Healthcare that it will “white label” the program.[xxii]

The Embarc offering was made possible, in part, by a company purchased by Express Scripts in 2017, eviCore, which had experience managing specialty medication utilization and spending.[xxiii] “This just takes care of the first two drugs that are in the marketplace, but we know many drugs are behind that,” said Dr. Steve Miller, Cigna’s chief clinical officer, in a video released alongside a company statement on the offering.[xxiv]

CVS Health, the Woonsocket, Rhode Island-based health company which completed its purchase of Aetna in 2018, told Modern Healthcare that it was exploring several payment options for expensive therapies, including annuity payments, stop-loss insurance and outcomes-based contracts.[xxv] The company also said it was considering changing its formulary and utilization management for therapies that have alternative treatments, according to the publication.[xxvi]

Implications

Prepare now; the wave is coming

As long as the focus remains on rare and ultra-rare diseases, gene and cell therapies won’t bankrupt health insurers, Patrick Fortune, vice president of market sectors at Partners HealthCare, a not-for-profit healthcare system based in Boston, told HRI. “Over time, however, I think the aperture for gene and cell therapies will expand to larger patient populations, as we’ve seen in other therapeutic areas,” Fortune said. Creating access and reimbursement models now, while the patient populations are small, will be critical to successfully scaling up these programs as more patients become eligible for expensive new treatments, he said.[xxvii]

Providers, too, might need help financing gene therapy. Providers are a critical part of the gene therapy supply chain, collecting the cells from patients, properly packing them to be shipped off-campus to a processing facility and then, once the cells return, reintroducing them into the patients.

So far, the costs are high and reimbursement is uncertain. Under Medicare Part B, typically, providers purchase drugs and are reimbursed after the drugs have been administered, a process known as “buy and bill.”[xxviii] But buying now and waiting to be paid back later, perhaps at a loss, is a different story when the treatment’s price tag is more than $1 million.

Providers may seek assurance or financing help from pharmaceutical companies or payers to offset financial risks associated with being part of the supply chain. But these deals will have to be carefully constructed to avoid being viewed as kickbacks.

Consumer finance is a patient experience opportunity

The billing and payment experience can help or harm an organization’s reputation with consumers.[xxix] Data, along with consumer segmentation, can help determine what sorts of financing tools patients might need, or be most likely to use, and create positive experiences long after discharge, after the explanation of benefits is mailed or after the prescription is filled at the local pharmacy.

Research conducted by HRI concluded that consumer segments valued different features related to payment and billing, with, say, millennials much more likely to ask providers for discounts on the price of a visit, and more affluent patients much less interested in using retail pharmacy apps.[xxx] Healthcare organizations that carefully segment their consumer populations and learn their preferences may be able to turn a pain point — billing and payment — into a positive experience that leads to return visits and good word-of-mouth.

GoodRx has found traction using technology making it easier for consumers to shop for drugs and compare prices, said Thomas Goetz, the company’s chief of research. “It’s understanding what actually matters to people,” Goetz told healthcare executives at PwC’s 180 Health Forum in 2019. “It’s understanding how people will actually use these technologies. … What does the user want? That’s a principle of technology that other industries use as a matter of course. Serve your user. We’re only starting to do it in healthcare.”[xxxi]

Establish a value line

Having a line of product and service options at different price points for customers is a smart growth strategy in a healthcare ecosystem in which average deductibles have tripled over the past decade, making healthcare costs a difficult financial decision even for the insured. Rather than building their own value lines, traditional health companies should consider acquiring or partnering with firms that have figured out how to deliver value to the uninsured and underinsured and turn a profit.[xxxii]

Recently, Walmart launched its first stand-alone Walmart Health center in Georgia, where customers can find primary care, dental care, mental health services and imaging services as well as access to wellness services through Walmart’s partnerships with community health organizations.[xxxiii] The company also started offering 44 generic prescription drugs in four therapeutic categories for just $4 each for a 30-day supply.[xxxiv]